Should you buy long-term disability insurance as a resident?

You’ve spent eight years or more in undergraduate studies and medical school. Student loan debt keeps piling up. You’re working 12 to 16 hours a day while making around $50,000 annually.

You have little time to think about the future or what you would do if an unforeseen event prevented you from practicing medicine. And it’s hard to find room in your budget for things beyond basic living expenses.

But there are severals reasons to consider buying disability insurance as a resident.

You can protect your future income potential

You’ve invested thousands of hour and a lot of money to practice medicine. The payoff will come when you’re a practicing physician.

But what if that day never arrives due to an accident or illness that leaves you unable to practice medicine? The income you counted on will not materialize. You may have to work in a lower-paying profession or your injuries may be serious enough that you can’t work much at all. If that happened, how will you get by for the next 20 to 30 years?

Buying a physician disability insurance policy today, while still in residency, can provide sufficient income in the event an accident or illness prevents you from practicing medicine. Here’s a few reasons why you should think about buying disability insurance during residency.

It will never be more affordable

One of the underwriting factors that determines the cost of disability insurance is age. The younger you are, the less you will spend on coverage. Waiting until you think you can “afford” it will add to the cost.

Consider the following example. An emergency medicine physician in Texas can save $4,511 over the course of his policy by purchasing at age 30 instead of waiting until age 35. Even the five years of not paying premiums don’t offset the additional cost of the policy.

Age

30

31

32

33

34

35

Cost of Waiting

-

$1,585

$2,867

$3,847

$4,430

$4,511

Average Annual Premium

4,614

4,797

4,981

5,167

5,353

5,534

Number of Years to Age 65

35

34

33

32

31

30

Total Lifetime Cost of Policy

$161,514

$163,099

$164,381

$165,361

$165,944

$166,025

Most doctors purchase an individual policy in training

It’s true, most doctors are buying an individual policy during residency or fellowship, before starting practice. According to the 2017 Report on Long Term Disability Insurance for Doctors, 55.4 percent of doctors purchase an individual policy while in training. Buying during this stage allows you to take advantage of discounts and lock in pricing at a lower cost.

You don’t want to rely solely on group coverage

A group policy is better than nothing, but likely won’t offer you the full protection you need. Group policies are not underwritten; they cover all applicants within a certain group, such as by employment or association membership. Therefore, the insurer cannot take on as much risk with a group policy. That results in coverage that is inferior to individual insurance.

Group policies can often be cancelled at anytime, whereas you can also typically keep your individual policy as long as you pay the premiums, regardless of where you’re employed.

Individual policies also have stronger definitions for what constitutes disability than group policies and will pay benefits in a greater number of circumstances. You can buy added protection that pays benefits if, after suffering a disability, you can still work part-time in your chosen field or full-time in another speciality or profession.

Student loan debt won’t just disappear

Without the income from working as a physician, you won’t be able to repay the thousands of dollars in student loan debt. Even if you declare bankruptcy following a disability, student loans are very difficult to discharge.

Disability insurance benefits can help you replace some of the income you would lose due to injury or illness. You can use part of your insurance benefits to repay your monthly student loan bills. In addition, many policies offer an optional rider that will pay off your student loan debt in the event of disability.

You can always buy more coverage later

Disability insurance coverage is based in large part on your current income. For doctors in residency or fellowship, benefits are typically capped between $5,000 and $6,500 a month, regardless of specialty or income.

That obviously won’t be enough once you have the income of a practicing physician. But you can add a Future Purchase Option rider to your policy. This enables you to add more coverage once you’re through residency with have to go through medical underwriting again. The best part? You’ll lock in your current pricing when you exercise your future purchase option later down the road.

You may also be able to obtain higher coverage if you have post-residency employment set up. Some insurers will lift the residency coverage cap if you already have an employment agreement signed once you complete residency. The company would use base your coverage on the income you would earn as part of that agreement.

Essential elements for disability insurance as a resident

There are core elements every physician should including in their disability policy to provide necessary coverage. These are the most critical ones for those buying as a medical resident:

Non-cancelable. A disability insurance policy that is non-cancelable is one that enables you to renew it at the end of each premium term until its expiration or termination date. During this time, the insurer cannot change any part of the policy, including the premium amount, and cannot cancel the policy for any reason.

Graded premium structure. Many disability policies offer a choice between a level or graded premium structure.

With a level premium, you pay the same amount for the life of the policy. A graded structure, on the other hand, starts with a lower premium payment, up to 40 percent less during the first years of a policy. The premium amount gradually increases over time as you earn more income and can afford to make higher payments.

Own-occupation. Many disability policies only pay benefits if the individual is unable to work in any capacity. In this case, you may not collect any benefits if an illness or injury prevented you from practicing medicine so long as you were healthy enough to do other work. But with an own-occupation disability insurance policy, the policy will pay benefits if an injury prevents you from working in your medical specialty, even if you’re well enough to earn income doing other types of work.

Residual disability. A residual disability rider can supplement the income of a disabled person who is still working and not considered to be totally disabled. Residual benefits are typically calculated as a percentage of both the policyholder’s loss of earnings and the benefit that the policyholder would receive if he or she was unable to work. It essentially makes up the difference between what you earned before disability and what you can earn with your disability.

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